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The Bank of England’s governor has ruled out extending its bond-buying support for pension funds beyond Friday’s deadline, prompting a dramatic fall in the value of the pound.

Andrew Bailey told an event in Washington that funds had “three days left… to get this done” after a series of interventions to support the “dysfunctional” market in the wake of the wider meltdown over the government’s mini-budget.

The latest action, on Tuesday, saw the Bank snap up index-linked gilts, government bonds with interest payments in line with inflation.

They are heavily used by pension funds.

The Bank had already been buying up long-dated gilts – a type of government bond that make up a large proportion of pension pots – to steady market jitters.

They saw yields – the rate demanded to hold government debt – shoot up as pension schemes tried to raise hundreds of billions through firesales of government and corporate bonds to meet cash calls – the latest coming from providers of so-called liability-driven investment strategies.

They are demanding funds put up more money to support new and older hedging positions.

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Mr Bailey told an event organised by the Institute of International Finance that the intervention must be temporary.

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“We have announced that we will be out by the end of this week. We think the rebalancing must be done.

“And my message to the funds involved and all the firms involved managing those funds: You’ve got three days left now. You’ve got to get this done.”

Industry body the Pensions and Lifetime Savings Association had earlier urged the Bank to extend the bond-buying programme until 31 October – the new date for the publication of the government’s debt plan – at least.

Mr Bailey’s clear stance on the issue saw the pound, which had been trading higher on the day versus the dollar earlier, sink by more than one and a half cents to below $1.10.

On Monday the Bank announced a potential doubling of the amount it was willing to spend every day on long-dated gilts.

Gilt yields, the interest rate payable on government bonds, rose on Monday, near the 5% highs of 27 September, the day before the Bank made its first intervention.

They fell when news of the latest operation was announced but long-dated yields later rose higher again.

That took place when the Bank revealed it had bought £1.947bn of index-linked bonds on Tuesday, adding that it had rejected £466.9m of offers to sell to the central bank.

It also bought up £1.363bn in long-dated bonds – also well below the £5bn possible.

The yield on 30-year bonds rose back to 4.8% for a short time, having been down at 4.4% around lunchtime.

The benchmark 10-year yield remained around the 4.4% level.

“Things seemed calmer again today,” Mr Bailey told the event.

“We will see,” he added.

The Bank announced on 28 September a temporary and emergency buying programme of long-dated gilts that are to be repaid in 20 to 30 years time, in the wake of chancellor Kwasi Kwarteng’s mini-budget announcement.

Read more:
What are bonds, how are they different to gilts and where do they fit in the mini-budget crisis?

Bond buying period due to end on Friday

Market turmoil that stemmed from the mini-budget led to the unprecedented intervention from the regulator to prevent part of the pension market collapsing as the cost of interest on gilts surged.

Russ Mould, investment director at AJ Bell, said of the scheme’s expansion before Mr Bailey’s remarks: “The Bank of England hopes to avoid a crisis in the market by being a willing buyer of bonds from pension funds who are under pressure.

“These pension funds will welcome today’s move, but whether the broader market shares the same enthusiasm remains to be seen.

“The key sticking point is that the support measures are only scheduled to last until Friday.

“Will that be long enough, or will the Bank of England extend the support scheme? Extending it could go one of two ways – the market either applauds the move and breathes a sigh of relief or it gets even more worried, thinking that the extra time suggests the crisis is more severe than originally thought.”

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US and EU agree trade deal, says Donald Trump

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US and EU agree trade deal, says Donald Trump

The United States and European Union have agreed a trade deal, says Donald Trump.

The announcement was made as the US president met European Commission chief Ursula von der Leyen at one of his golf resorts in Scotland.

Speaking after talks in Turnberry, Mr Trump said the EU deal was the “biggest deal ever made” and it will be “great for cars”.

The US will impose 15% tariffs on EU goods into America, after Mr Trump had threatened a 30% levy.

He said there will be an EU investment of $600bn in the US, the bloc will buy $750bn in US energy and will also purchase US military equipment.

Mr Trump had earlier said the main sticking point was “fairness”, citing barriers to US exports of cars and agriculture.

He went into the talks demanding fairer trade with the 27-member EU and threatening steep tariffs to achieve that, while insisting the US will not go below 15% import taxes.

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For months, Mr Trump has threatened most of the world with large tariffs in the hope of shrinking major US trade deficits with many key trading partners, including the EU.

Ms von der Leyen said the agreement would include 15% tariffs across the board, saying it would help rebalance trade between the two large trading partners.

In case there was no deal and the US had imposed 30% tariffs from 1 August, the EU has prepared counter-tariffs on €93bn (£81bn) of US goods.

Ahead of their meeting on Sunday, Ms von der Leyen described Mr Trump as a “tough negotiator and dealmaker”.

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Bread producers Hovis and Kingsmill close in on historic merger

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Bread producers Hovis and Kingsmill close in on historic merger

The owners of Hovis and Kingsmill are closing in on a definitive agreement to merge two of Britain’s most famous grocery brands following months of talks.

Sky News has learnt Associated British Foods (ABF), the London-listed company which owns Kingsmill’s immediate parent, Allied Bakeries, has proposed paying roughly £75m to acquire Hovis from its long-term private equity backers.

Banking sources said a deal could be formally agreed to combine the businesses as early as the end of next week, although they cautioned the complexity of the transaction meant the timing could yet slip.

Confirmation of a tie-up would come nearly three months after Sky News revealed ABF and Endless – Hovis’s owner since 2020 – were in discussions.

Industry sources have estimated that a combined group could benefit from up to £50m of annual cost savings from a merger.

ABF has also been exploring options for the future of Allied Bakeries separate from its talks with Hovis in the event a deal could not be agreed or is prevented from completing by competition regulators.

If it does go ahead, the merger will unite two historic bread producers under common ownership, with Allied Bakeries having been founded in 1935 by Willard Garfield Weston, part of the family which continues to control ABF.

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Hovis traces its history back even further, having been created in 1890 when Herbert Grime scooped a £25 prize for coming up with the name Hovis, which was derived from the Latin ‘Hominis Vis’ – meaning “strength of man”.

Persistent inflation, competition from speciality bread producers and shifting consumer habits towards lower-carb diets have combined to impair breadmakers’ financial health in recent decades, however.

In accounts filed at Companies House earlier this month, Hovis said it had “achieved positive financial progress despite continued tough trading conditions”.

The company reported sales of £439.6m in the 52 weeks to 28 September last year, down from £477.6m in the 53 weeks to 30 September 2023.

Earnings before interest, tax, depreciation and amortisation fell from £20.9m to £18.7m, which Hovis said was the result of the revenue decline and higher distribution costs.

“Overall bread share remained stable, despite significant price inflation and the ongoing cost-of-living crisis, demonstrating the resilience of the Hovis brand and its iconic status as one of Britain’s most loved food brands,” the accounts said.

This week, the trade publication The Grocer reported that Britain’s big four supermarkets, including Asda and Sainsbury’s, had delisted a number of Hovis-branded products.

The publication quoted a Hovis spokeswoman as saying the company was “aware of some adjustments to Hovis product lines in certain stores”.

“We remain fully committed to working collaboratively with our retail partners to grow our mutual businesses.”

The overall UK bakery market is estimated to be worth about £5bn in annual sales, with the equivalent of 11m loaves being sold each day.

Critical to the prospects of a merger of Allied Bakeries, which also owns the Sunblest and Allinson’s bread brands, and Hovis taking place will be the view of the Competition and Markets Authority (CMA) at a time when economic regulators are under intense pressure from the government to support growth.

Warburtons, the family-owned business which is the largest bakery group in Britain, is estimated to have a 34% share of the branded wrapped sliced bread sector, with Hovis on 24% and Allied on 17%, according to industry insiders.

A merger of Hovis and Kingsmill would give the combined group the largest share of that segment of the market, although one source said Warburtons’ overall turnover would remain higher because of the breadth of its product range.

Responding to Sky News’ report in May of the talks, ABF said: “Allied Bakeries continues to face a very challenging market.

“We are evaluating strategic options for Allied Bakeries against this backdrop and we remain committed to increasing long-term shareholder value.”

In a separate presentation to analysts, ABF – which is also in the process of closing its Vivergo bioethanol plant in Hull after pleading for government support – described the losses at Allied, which also owns own-label bread manufacturer Speedibake, as unsustainable.

The company does not disclose details of Allied Bakeries’ financial performance.

Prior to its ownership by Endless, Hovis was owned by Mr Kipling-maker Premier Foods and the Gores family.

At the time of the most recent takeover, High Wycombe-based Hovis employed about 2,700 people and operated eight bakery sites, as well as its own flour mill.

Hovis’s current chief executive, Jon Jenkins, is a former boss of Allied Milling and Baking.

This weekend, ABF declined to comment, while Endless could not be reached for comment.

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Good economic news as sunny weather boosted retail sales

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Good economic news as sunny weather boosted retail sales

Retail sales grew in June as warm weather boosted spending and day trips, official figures show.

Spending on goods such as food, clothes and household items rose 0.9%, the Office for National Statistics (ONS) said.

It’s a bounce back from the 2.8% dip in May, but last month’s figure was below economists’ forecast 1.2% uplift as consumers dealt with higher prices from increased inflation.

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Also weighing on spending was reduced consumer confidence amid talk of higher taxes, according to a closely watched indicator from market research firm GfK.

Retail sales figures are significant as they measure household consumption, the largest expenditure in the UK economy.

Growing retail sales can mean economic growth, which the government has repeatedly said is its top priority.

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June’s retail sales rise came as people bought more in supermarkets, and retailers said drinks sales were up.

While hot and sunny weather boosted some brick-and-mortar shops, the heat led some to head online.

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Non-store retailers, which include mainly online shops, but also market stalls, had sold the most in more than three years.

Not since February 2022 had sales been so high as the Met Office said England had its warmest ever June, and the second warmest for the UK as a whole.

The June increases suggest that the May drop was a bump in the road. When looked at as a whole, the first six months of the year saw retail sales up 1.7%.

Filling up the car for day trips to take advantage of the sun played an important role in the retail sales growth.

When fuel is excluded, the rise was smaller, just 0.6%.

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Despite lower consumer sentiment and more expensive goods, consumers are benefitting from rising wages and are cutting back on savings.

The ONS lifestyle survey – backed up by hard data like the Bank of England’s money and credit figures – shows that households have rebuilt their rainy day savings and are cutting back on the amount of money they squirrel away each month.

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